Moving the wheels

Automech-Formula 2017

Turnout for Egypt’s international motor show Automech-Formula 2017 this week was satisfying, according to exhibitors who participated in the event. They hoped that it would give a boost to an industry that has had a rough year following the devaluation of the local currency at the end of last year.

The automotive industry is a strategic sector for the Egyptian economy, with total investments of $3 billion and more than 100 companies operating, said Minister of Industry and Trade Tarek Kabil during the opening of the show, held in Cairo from 20 to 23 September with 24 manufacturers taking part.

Kabil stressed that the strategy for the automotive industry, which is yet to be passed by parliament, should help to build a strong sector that will better serve markets in the Middle East and Africa.

The strategy aims to give incentives to car manufacturers to increase the local components in cars being manufactured or assembled in Egypt, according to Khaled Hosni, spokesman of the Automotive Marketing Information Council (AMIC).

The strategy aims to increase the local components used in car manufacturing from 45 per cent to 60 per cent, in order to give local industries a boost.

Moreover, it includes protecting the Egyptian car market from the dumping of imported cars, especially European cars, because of the decreasing custom duties on the latter that should reach zero by 2019 in accordance with the EU-Egypt Association Agreement.

Details on the strategy have not been officially published, and the strategy itself was sent by the government to German experts to review before being officially issued.

The car industry was looking forward to the motor show as many car-buyers postpone their purchases until the annual event that normally witnesses a set of promotions and offers on different models, making it a good time to buy a new car.

This year’s round was much-awaited because of the devaluation of the Egyptian pound and consequent price hikes that made car models go up in value by more than double compared to last year and making the motor show’s promotions the perfect deals for customers.

Passenger car sales fell by about 60 per cent in Egypt in January and February 2017, compared to the same period in 2016, mainly because of the depreciation of the pound and the following hikes in car prices.

However, sales started to improve in the following months after the market had somewhat stabilised, with sales going up to approximately 45 per cent in March, April and May, then by 38 per cent in June, according to the AMIC.

The rising number of sales in the second quarter indicates that many customers have accepted the new prices, making those who can afford to do so buy new cars before prices increase again, according to Omar Balbaa, head of the Cars Division at the Giza Chamber of Commerce.

“This can happen with any commodity that witnesses a sudden and continuous price increase before settling down again,” he said, adding that bringing the customs exchange rate down to LE16 against the dollar, instead of LE16.5, should lead to further price reductions.

However, he pointed out that changing the rate every month had prevented that from happening, as car-dealers feared that changing prices more would further confuse potential customers.

“The customs dollar should be fixed at a certain rate for a long period of time in order to convince car-traders to bring down the current prices of cars,” Balbaa stressed.

The increases in the prices of cars, parts and accessories and petrol have all contributed to the slowdown in car sales in comparison to last year, Balbaa said. However, he believes the situation is improving as prices are now stable, even if they are not going down.

“The prices of new cars this year have led many potential customers to withhold their buying decisions, even amid several offers and facilitations in payment to attract more buyers,” he explained, adding that this had resulted in a decrease in car sales instead of the predicted 10 per cent improvement over last year’s figures.

Hosni pointed out that the total number of passenger car sales in the first half of 2017 had reached 39,980 units against 70,814 during the same period of 2016.

“The third and fourth quarters of 2017 are expected to be better,” he said, explaining that there were several factors that had contributed to the weak sales in the first half, including the school exams season, the month of Ramadan and the holidays which normally see lower car sales every year.